Defending Against Shareholder Proxy Access: Delaware's Future Reviewing Company Defenses in the Era of Dodd-Frank

The
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has ensured
that a shareholder’s ability to place nominees to the board onto the corporate
ballot, an objective long advocated by the institutional investor community,
will soon be implemented by the Securities and Exchange Commission. Advocates of proxy access urge that it will
help hold Boards of Directors accountable to their owners. Critics argue that it will give conflicted
shareholders, like unions and state pensions, power they will use to facilitate
their political objectives at the expense of ordinary shareholders. The shareholder primacy and director primacy
theories of corporate law have framed an extensive debate in the literature. Regardless of which theory holds force, we
can expect Boards to implement defensive strategies in the wake of proxy access
to limit shareholder power, in the same way that Boards implemented defensive
tactics in response to the hostile takeovers of the mid-1980s. Delaware’s review of Board proxy access
defenses will shape its role in the foreseeable future in much the same way
review of Board takeover defenses shaped its role over the last 20 years.

This article in part
considers what strategies may be useful for boards defending against proxy
access and designs novel methods boards might consider. It also examines how Delaware judges are
likely to review those defenses under a vast body of jurisprudence protecting
the shareholder franchise, also known as the Blasius line of cases. Though the
Blasius cases protect the shareholder franchise, they do not necessarily
prohibit board policies, bylaws, or charter amendments with an incidental
effect on the shareholder’s federal nomination right. Finally, this article considers whether the
defenses considered are likely to be struck down as pre-empted by federal law
or prohibited by the federal securities laws or stock exchange listing
requirements. The article offers a
roadmap for how boards are likely to respond to proxy access and how Delaware’s
role as arbiter of the shareholder/manager relationship is likely to evolve in
the new environment.